How much unemployment did Reinhart and Rogoff's arithmetic mistake cause?

[xchrom]

http://www.guardian.co.uk/commentisfree/2013/apr/16/unemployment-reinhart-rogoff-arithmetic-cause


Kenneth Rogoff and Carmen Reinhart


That's the question millions will be asking when they see the new paper by my friends at the University of Massachusetts, Thomas Herndon, Michael Ash, and Robert Pollin. Herndon, Ash, and Pollin (HAP) corrected the spreadsheets of Carmen Reinhart and Ken Rogoff. They show the correct numbers tell a very different story about the relationship between debt and GDP growth than the one that Reinhart and Rogoff have been hawking.

Just to remind folks, Reinhart and Rogoff (R&R) are the authors of the widely acclaimed book on the history of financial crises, This Time is Different. They have also done several papers derived from this research, the main conclusion of which is that high ratios of debt to GDP lead to a long periods of slow growth. Their storyline is that 90% is a cut-off line, with countries with debt-to-GDP ratios above this level seeing markedly slower growth than countries that have debt-to-GDP ratios below this level. The moral is to make sure the debt-to-GDP ratio does not get above 90%.

There are all sorts of good reasons for questioning this logic. First, there is good reason for believing causation goes the other way. Countries are likely to have high debt-to-GDP ratios because they are having serious economic problems.

Second, as Josh Bivens and John Irons have pointed out, the story of the bad growth in high debt years in the United States is driven by the demobilization after the second world war. In other words, these were not bad economic times; the years of high debt in the United States had slow growth because millions of women opted to leave the paid labor force.

[KoKo]

1. Recommend

[dawg]

2. None.

Had it not been for R & R's paper, the conservatives would have found some other excuse to impose austerity. That is what they do. Their think tanks and policy makers start with the policy they want, and then work backwards in order to find a semi-plausible justification.

[Scuba]

4. Bingo.

[MannyGoldstein]

5. +1

Beat me to it!

[caraher]

16. yep

The tail wags the dog...

[HiPointDem]

3. kr. though i think the ptb would have found ways to do what they wanted to regardless.

[MindPilot]

6. They look like a a couple of seriously un-fun people

I took a couple econ courses in college. Seemed like a lot of made-up woo to me. So I'm in the camp of had it not been these two the PTB would have found another hammer with which to bludgeon the working class.

[jsr]

21. Her husband is chief economist for Morgan Stanley.

I'm sure his spreadsheets are good. Probably gooder.

[Buffalo Bull]

7. excellent piece

Missing in our current debate is a strong voice warning of the peril that is inherent in radical austerity.
Currently we suffer from a coagulation of cash at the top of the economic food chain. A overly aggressive austerity program will do little other than magnify this by taking cash from the bottom, were it would be spent and circulate, thus reviving the economies vitality. As opposed to sending more to the top where it seeks shelters and tax havens because money is harder to make though productive activity , due to a lack of consumption at the bottom.

[House of Roberts]

8. Was it a mistake then?

Or intentional?

[Paulie]

13. They didn't select all the fields in an excel spreadsheet

Incompetence.

[Baitball Blogger]

9. I wonder if they already cast the parts for BeetleJuice 2?

'cuz, those two would make it to the short list.

[dembotoz]

10. conservatives--bad at science and now bad at math

we have spell check when can we get math check

damage will continue
just because the facts are shown to be false does not mean the republicans will stop using them

[n2doc]

11. Probably none

Because the Very Serious People don't care about facts. They would have pursued their Austerity religion just like they have pursued its previous incarnation, Supply Side Economics (which has been debunked long ago).

The end is all they care about, they will use any means possible to get there.

[malaise]

12. Was the error deliberate?? n/t

[jsr]

20. Minor clerical error

if you look at it at the right angle.

[Benton D Struckcheon]

14. I've been thinking about this since yesterday, and it reminds me of Friedman's NAIRU

which stands for the Non Accelerating Inflation Rate of Unemployment. Means that once unemployment drops below some number, inflation accelerates. The Fed, among others, believes heavily in this crap.
Which is what it is. Running the numbers for this is trivial. I did it once. Not only was there no rate I could find where if unemployment fell below it inflation would accelerate, it actually was mildly the other way, to the extent there was any relationship at all.
But it's still taken seriously.

[byeya]

15. Capitalists need unemployment to keep the workers compliant. In our near monopoly system,

corporations have pricing power in most industries so they can cope with inflation; with full employment workers can demand, and get, raises to keep up with inflation and capture their share of productivity gains. Inflation impacts the rentier class and those individuals dependent on a fixed income. Big capital invariably sides with the rentier class.

[Benton D Struckcheon]

19. I know that's the whole purpose of NAIRU,

but the most cursory look at actual data shows it to be a buncha crap. Just like this Reinhart-Rogoff thing. These people just throw whatever they want out there and get taken seriously as long as it fits the interests of the moneyed.

[byeya]

23. Yes, I just tried my best to amplify what you wrote. Hayak/Friedman paid no attention, seemingly, to

past economic history in northern Europe or North America(except maybe to distort it) and came up with nostrums to soothe those who were paying their salaries and honoraria. A lot seems to be trying to raise Say's Law from the dead.
Glad you brought the topic up...a person would become infirm waiting for the NY Times or WashPost to state the obvious.

[caraher]

17. Baker omits his own observation from 2010

When the paper was new, Dean Baker called out the authors for keeping their data secret:

Mr Rogoff and Ms. Reinhart have declined to adhere to standard ethics within the economics profession and have refused to share the data on which they base their conclusion with other researchers.

I wonder why Baker doesn't point this out again in his more recent piece? Being secretive about their original data is certainly circumstantial evidence that this may not have been a mistake (though if it were intentional did they really think the people they finally did release the data to would fail to notice the blunders?).

It could be that by now the paper has served its purpose. The false "fact" they generated has provided cover for implementation of the preferred policies, and its downfall is irrelevant so long as those policies and attitudes continue to hold sway.

[zeemike]

22. Bingo...they don't care.

Their purpose was to create a meme and they did that...and they know it will be used.
By the time someone debunks the lie it has traveled as far as they wanted it too.

[byeya]

24. Dean Baker, to me, is an example of an economist with ethics. Smart and courageous man.

[caraher]

26. Yep

I knew him from working on the Jesse Jackson presidential campaign in '88 when Baker led the effort in the congressional district that included Ann Arbor. I knew of him before that, when he was arrested at sit-ins protesting US policies in Latin America; he also ran for Congress to bring attention to that issue, winning the Democratic primary. A real man of conviction.

[Cleita]

18. Living life by the spreadsheet is an error in itself.

Spread sheets or papers with equations on them are two dimensional. Life is 3D. My own opinion of course, but I think if a lot of these economists also incorporated lessons from history in their theories they might find that they missed a lot they should have included in their figures.

[rhett o rick]

25. k&r and thanks for posting